'You know we said we wouldn't be scanning your console to see what you've been up to... well...'

By David Becker

Microsoft has backtracked on an earlier pledge not to use its Xbox Live online gaming service to crack down on modified chips which enable the console to run copied game discs and unlicensed software.

A 14-page user agreement and privacy notice included with the first Xbox Live kits sent to beta testers specifies that Microsoft reserves the right to revoke Xbox Live privileges for anyone with a chipped Xbox and to scan consoles on the network to enforce its rights.

A handful of grey-market Xbox mod chips have gone on sale in the past few months. Once soldered onto the Xbox's main circuit board, the chips disable various copy protection measures, allowing the machines to run legally or illegally copied discs, imported games and unlicensed software. Numerous hacking projects have emerged to use the chips to adapt Xbox units for use as media players and Linux boxes.

Although Microsoft has said it will take legal action against any modifications that infringe on its intellectual property, a representative for the software giant said last month that Xbox Live, the upcoming online service for the console, would not be used to detect modified consoles.

Yet language in the initial Xbox Live user agreement appears to allow Microsoft to do exactly that. It states: "Xbox Live may only be accessed with an unmodified, except for Microsoft authorised repairs and upgrades, Xbox video game console. Any attempt to disassemble, decompile, create derivative works of, reverse engineer, modify, further sublicense, distribute or use for other purposes either the hardware or software of this system is strictly prohibited."

The agreement further states: "Microsoft may retrieve information from the Xbox used to log on to Xbox Live as necessary to operate and protect the security of Xbox Live, and to enforce this Agreement."

The privacy statement accompanying the agreement says information collected about specific consoles connected to Xbox Live will be used to update the console's software, protect the network's security and "protect and defend the rights or property of Microsoft."